Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for March, 2005

Victor
Salmeron is without any doubt the best investigative reporter in Venezuela of
those that cover the economic beat. Today he wrote
this piece in El Universal that I think is worth translating in the context
of my earlier piece on the return of Venezuela Inc. :

The puzzle of the Bolivarian state
capitalism by VICTOR
SALMERON

Riding the vehicle of oil high income and of the sources
of financing that have raised the criticism of analysts- foreign exchange
profits from the Central Bank, debit tax, issuing new debt- the Hugo Chávez administration
is increasing the role of the state in the economy, assigning it the role of
producer and occupying parcels that had remained in the hands of the private
sector.

Tractor
factories, nationalization of Venepal, the creation of a distribution network
for foodstuffs at low cost, media outlets, expansion of the public financial
system, the telecom company CVG Telecom, are some of the actions that show an increase
of the weight of the state in the economy.

“To this
conglomerate we have to add the non capitalistic arm, we are talking about the endogenous
nuclei and cooperatives, which do not have as their goal obtaining a profit. In
1998 there were only 4 thousand cooperatives, at this time the numbers reaches
24 thousand five hundred” EXPLAINS Jose Guerra, Professor at the School of Economic at Universidad Central de
Venezuela.

The
propagation of the state at a time in which the economy has stayed, in real
terms, at practically the same levels as of those of 1998, has as a consequence
that the participation of the private sector in the economy has been reduced, this
is what Jose Guerra defines as “a change in the structure of property in the
country”

What do
private companies that remain active face, given the advancement of this new
model? “They will have to compete with public enterprises, but at a
disadvantage. They will not receive direct public financing via the budget, they
will not receive the backing of preferential financing from Banco Industrial de
Venezuela, Bandes y Banfoandes, they will also not count with exemptions and fiscal
waivers” says José Guerra.

To the creation
of new public enterprises one has to add a regulatory framework in which the
state controls the purchase of foreign currency, the price of a wide array of products
and is preparing a foreign Exchange penal law to restrict the freedom of the
parallel market for foreign currency.

Analysts estimate
that the macroeconomic conditions exist at this time to initiate a
flexibilization, as well as the lifting of controls, which arose in the middle
of the difficulties created by the paralyzation of PDVSA and the strike by the
private sector in 2003, but up to this moment there are no signs pointing to
this, on the contrary, the Government has shown that it wants to increase the
statist nature of the model.

Are we
facing a retrograde movement of returning to the seventies? José Guerra thinks that “there are differences,
this state capitalism is a phase in a political Project”

Up to now,
the creation of public companies has not been successful. The banks of the
People and the Women, emblematic institutions in the game board of the
financial system that the Chavismo has created, are closing 2004 in the red,
according to the financials of the Ministry of Finance.

The oxygen
tank that the public budget represents will require that the price of the Venezuelan
oil basket stays at high levels to continue pumping fuel to this new state
structure.

During the last six years, the “revolution” has been promoting
mediocrity. Few Government officials have been considered either
experts or competent in their fields, as Chávez rotated Ministers and
officials from one position to another, independent of their
qualifications or knowledge of the field. Few Government officials even
had management experience but only the “belief” that anyone can do any
job, that knowledge, academic preparation or experience is not that
important.

Yesterday, the Minister of Education Aristobulo Isturiz, the same man
that before he was named Minister in 2001 said Hugo Chávez had
apparently “smoked an eggroll”, announced in the National Assembly that
this is in fact a state policy. Isturiz simply announced that all of
the changes being made in the educational sector are being made “so as
not to continue forming meritocrats”. In this manner, the Minister
ratifies what we had suspected all along, advancement in the revolution
will not be based on individual achievement or ability, but simply on
political loyalty to the “process”. According to Isturiz, the
system created “stateless” meritocrats and technocrats with no sense of
belonging. Of course, his sense of what the state is, what the truth
is, his own sense of belonging has to be imposed on everyone. His own
sense of mediocrity has to prevail. Only a mediocre Venezuela can
follow from that.

We may have known this all along, we may have suspected it, but to have
it articulated so clearly is simply shocking. It is indeed a sad day
for Venezuela. Just another one.

Our spring orchid exhbit is this week, which means my flowers are all dying, but here is what I would have shown last weekend:

A very nice Cattleya Nobilior from Brazil, this is the corelua variety. Simply lovely! This is a picture of one floer of my Aerangis Citrata, after showing the plant form the World Orchod Show below, I refuse to show how tiny my plant is. But I love it.

I don’t like hybrid too much, but when they are so close to the original species like this Slc. Jungle Gem, I just melt!

The Government announced yesterday
that it will, once again, extend the firing freeze for both public and
private workers that make less than Bs. 633,600 (US$ 295) a month. This
is one of those tropical economic inventions that simply become useless
in real life. The firing freeze has been in effect since May 2002.
During that time, the official unemployment rate in Venezuela has been
as high a s17.1% and as low as 10.9%. This clearly shows that the
measure is in the end irrelevant in practical terms, but it makes for
great grandstanding on the part of Government authorities who parade in
front of the TV cameras, talking about protecting the weak and
increasing employment. In reality, there are many ways to circumvent
this regulation and it has been tried by both this Government as well as prior
ones.

The revolution created two new and revolutionary banks to help the
“people”: The People’s bank and the Women’s bank. However,
in a country where the private banking system has had obscene profits
for the last few years, the banks created by Chavez leave a lot to be desired as banking institutions and will have to be capitalized (again!) soon.

The people’s bank lost Bs. 3.7 billion in 2004 on revenues of 5.6
billion and expenses of 9.3 billion. During that year 40% of
loans outstanding were behind, compared with only 2% in the private
banking system.

The Women’s bank lost 1.47 billion Bs. with a morosity of 52%.

Of course, both institutions have spent lots of money in systems and
travel. Both banks are already on their second information system in
three years and the travel has been made in order to learn of similar
experiences in other countries. Either those experiences were not too
succesful, or the people sent on these trips failed to learn very much
during their travels.

Tulio
Hernandez was an early supporter of Chavez and the Constituent process, but has
slowly been turning around against the current Government and its leader. With
this article in Sunday’s El Nacional he establishes, for the first time in my
memory, a wide distance between himself and the “revolution”

Little
stories of neo-authoritarianism by Tulio Hernandez

A planet where there are in
military academies, nor policemen nor jails, nor currencies

Victor
Valera Mora, “Relación para un amor llamado amanecer”

1.- Of Frustrations. She is 24 years old. She
graduated magna cum laude at the journalism school. With meager savings she
traveled to the US
during six months to improve her English. A good friend found her a job at a Ministry.
Enthusiastic about her new job, she rushed back to Caracas. On a Friday morning she was met by
the Head of Personnel and after the interview de rigueur, was immediately hired. She was assigned an office and
that same morning she started working. The reference from her Bolivarian friend
had worked. The joy of the first job.

In the
afternoon, about 3 PM, she was once again called to the Personnel office. “I am
sorry”, the lady told her with a face of consternation “you can not continue
here, we found out you signed, why did you do that? Why were you so imprudent?
She added. The first job had not even lasted her one day. She had made a
“professional” error: signing the request to recall the President. The smile of
the morning is still frozen in her memory.

2.-Of boastfulness. The office is located
in a building in the East of Caracas. Her boss, who had been named by the Minister,
was abroad on an official mission. In the morning, two Government official burst
in the office, Official Gazette in hand, and point out that new bosses have been
named for that location. With the bad temper which characterizes cheap cops,
the pair of neo-bosses threaten the professionals that are present, announcing
to them that from now on they are the new bosses, they place a poster of Chavez
and another one of Che Guevara on the walls and proceeded to submit-that is the
precise term- to an interrogation each of those present and, without any prior
authorization, with the aid of a technician that they brought expressly to
violently access it, they begin reviewing the files in the computer of the
outgoing boss, who you may recall, is not present. They say they are looking
for irregularities. One of them, with the same literary style that the highest
authorities have implemented in the country, exclaims: We are going to screw
him so that he stops saying such B.S.!

The
removed official returns to Venezuela,
tells the press and the radio that his rights have been violated and a week
later they publicly begin the process of “charging” him for crimes against the
nation. Well known professionals lend themselves to the game, but we all know
that, much like the boastful duo had warned earlier, the persecution has
nothing to do with any irregularity (if that were the case, half the Government
would be in jail)but only so that “he stops saying such B.S.”

3. – Of Dignity. She is an anthropologist.
Despite her young age, she is a specialist in linguistics of the indigenous
group which, according to the want ad she had read, the professional being
sought should work with. Following this, the young anthropologist submits her
CV and gets the job. But, oh tragedy! She had also signed the petition to
recall the President. Nevertheless, in contrast to our first story, she is
offered an alternative. :”In recognition of your extraordinary CV” says the bureaucrat
interrogating her, “we will hire you if you make public a letter retracting
from having signed the recall”.The
young lady, alarmed, irritated and offended, no even allows herself to respond
to such a disparaging request and abandons the office. When she gets home, her
parents back her decision. They celebrate it. It is a matter of dignity and
values.

4.-Of footnotes. He works as a consultant
for international organizations. He is regularly hired to write reports about
specific topics. Generally the Venezuelan counterpart is a ministry or
autonomous institute. At the end of last year he handed in a report. A few days
later the official in charge of evaluating it gave him an appointment and told
him his report had not been approved and he could not pay him his
stipend…unless he corrected it. The reason? There were a large number of
bibliographical references and citations, almost ten, to authors that are
publicly against the “process”!

He now
knows that the official censorship of Pedro Morales’ work when it was selected
for Venice’s Biennial and the piece by Hector Fuenmayor “Mi delirio del chimbo
raso”, vetoed by the Alejandro Otero museum, were not lies by the press but
only a “bad custom” that little by little has been extending to other areas,
until it just touched him.

5. – Of little Creole pioneers. It is a TV
program called “Learning” It is shown at 9 AM in the official channel Vive TV
and in parts of its transmission last Tuesday it devoted itself to showing a
group of kids, members of the “patrolmen that protect our cultural heritage” or
something like that, training three other kids that were visiting the
headquarters of a cultural institution.

The matter
was enough to fill you with panic. In the part that by chance we managed to
watch, a kid, we concluded that he was the head of the patrolmen, was training
the three visiting kids following the martial ritual of questions and answers
with a loud and severe voice belonging to military forts or the little Cuban
pioneers “At eeease… Stand in attention” shouted the guide while the visitors,
with sweet clumsiness, were trying to follow his orders. Then the guide ordered
“the salute of the patrol” to the group of kids and they would join their heels,
placing their arms straight next to their bodies, trying to push their chests
out and responding in unison: “Culture is the power of the people” a salute
which the visiting apprentices had to emulate repeatedly, shouting as many
times as their “guide” requested it. At the end of the program they ask the
kids questions like: What did you learn today? To which they responded, among
other things, that they learned about the voice commands of “closed military
order” and that “culture is the power of the people”.

6.- Moral. Totalitarism acts like the lash of
the paw of a lion: quick, bloody, evident, and unable to hide. Neo- authoritarianism,
on the other hand, does it like a boa constrictor: it takes its time to slowly
asphyxiate the victim, in this case, hitting it where it hurts the most,
seeding with little fears their daily life to reach the same end: social
control. Nothing evident and with the least possible blood.

This story begins at a scientific meeting on Nutrition sponsored by the Bengoa Foundation which took place on March 14th. and 15th. in Caracas. In it, Dr. Maria Nieves Garcia from the Medicine Department of the Venezuelan Institute for Scientific Research (IVIC) presented data from a study which showed extremely high levels of anemia in the northern states of the plains (llanos) of Venezuela, which reached alarming levels of over 70% in populations of children under two years old, with overall levels of 32% in children between the ages of 2 and 15.

As background, anemia has been a long storied problem in Venezuela, which has been attacked successfully by adding iron to the corn flour used to make such preparations as arepas, empanadas and other local dishes. This was the result of the work of the founder of Dr. Nieves’ laboratory at IVIC, Dr. Miguel Layrisse who worked in close collaboration with Fundacredesa a center that studies the Venezuelan population and which was founded by Dr. Mendez Castellanos. Dr. Nieves did mention in her talk that some of the corn flour being sold by Mercal, the Government’s food distribution network does not contain iron, a reversal of a method that had been extremely successful in limiting anemia in Venezuela for the last forty years.

The reaction by the irrational revolution was violent and virulent. In the next two days both Fundacredesa and the Ministry of Science published paid ads in major Venezuelan newspapers, questioning the validity of the data (see the text in the Fundacredesa webpage as long as it remains there), questioning the ethics of the author and calling the study “descriptive” and “non-probabilistic (??)”, saying that it did not allow “inferences”.

Clearly, the study irked the authorities by concluding something that goes against the image of the Government, despite the fact that the researcher was simply noting that these levels were a source of concern and that when importing corn flour to sell in the Government’s markets someone had forgotten the experience with local corn flour as a weapon against anemia. Little did it matter whether the story was right or wrong, it simply had to be discredited for the sake of the reputation of the revolution even if they had to damage the reputation of a researcher. These ads in the local press were expensive and obviously the researcher had few weapons to counter it with. In fact, according to a reporter in today’s newspaper the researcher is now “on medical leave” and unavailable.

But even if Dr. Nieves is suddenly “unavailable” for answering questions, she did terminate her collaboration with Fundacredesa in a letter in which she not only defends her conclusions, but explains in detail their meaning. Here are some highlights of that letter:

“The data and analysis provided by IVIC to Fundacredesa are not the property of that institution, nor does my laboratory receive funding to do them. The data mentioned is final and does not require subsequent analysis or changes, (the bold is in the letter), least of all after five months after completing the study and handing in the results to your institution.”

“As to the statement made in the ad in the newspapers: “the conclusions obtained in this study, can only refer to the group sampled and does not represent the population of the northern axis of the Llano and least of all of Venezuela”, based on the nature of the experimental design this must be something that will shake the foundation of Fundacredesa, given that both the design, as well as the recollection of samples is, like it has always been the responsibility of that institution. I should remind you that previous publications by Fundacredesa have been based on studies with similar designs…one of which clearly states that the information obtained can not be taken in a strict statistical sense as representative of the universe, but it does generate a good reference framework. Thus, I ask, when is it convenient that the information be a good reference? Similarly, why does Fundacredesa design costly population analysis and studies that do not allow any inferences?”

“The statement that the study is non-probabilistic because “not all kids under two years had the opportunity to be included in the sample” appears to be the recognition that access for healthy kids (the selection criteria in the study) to health centers is limited, which may be true, but does this mean that as long as this is true we will not be able to determine if there is an anemia problem in the country? Is there any reason to think that kids under two, of the same social strata as that evaluated, but could not be evaluated because they have no access to health centers, is in better shape that those that do?”

“It is a pity that the ads make no reference to the importance of the results and that the numbers obtained are not abstract, THEY REFER TO HUMAN BEINGS. Even if we suppose that that the prevalence of anemia is only representative of the group studied, I remind you that in three states of this country there “lives” a group of children under two years of age that when 137 of them were evaluated, 97 of them were found to have anemia. What is being done about this?”

“On Sunday March 20th. the Ministry of Science published another ad, where it says that according to data provided by you, my result can not only not be generalized, but the prevalence of anemia reported DOES NOT EXIST. I hope this statement is the result of a study of a sample that is representative of reality. Such data should be made public together with the sources that allow them to reach such conclusions.”

“I close by hoping that more resources and knowledge will be devoted to improve the situation of Venezuelans, more than in statistical manipualtion that do not allow us to see reality”

“Since the studies designed by that Institution do not allow to reach conclusions that will translate into action to improve the quality of life of Venezuelans, since the analysis that are made in my laboratory requires a financial effort, time and work and knowledge and because of the way in which you have attempted to discredit both my data and my professionalism, I terminate the collaboration with your Institution which leaves me with the sad impression that the least important thing in this situation is the health of Venezuelans”

Once again, the revolution is more important than the truth and the truth can be discredited, attacked and wiped out given the resources of the Government. As for science, we already know the Government could care less about it, it already destroyed the premier center for the understanding of Venezuela’s most important natural resource: heavy oil. The difference this time, is that the science refers to actual real and live human beings. “El pueblo”, as our illustrious autocrat would say.

Last week
I was once again in Spain,
a country dear to my heart, because I spent five years of my youth living
there. It is indeed a very special country. Forty years ago Spain and Venezuela found each other in exactly
the opposite positions they find themselves in today. Venezuela was
then a rich country, just out of a dictatorship, trying to make sense of how a
democracy worked. The country had a strong economy, a strong currency and the
private sector was thriving. Spain
on the other hand was a fairly poor country, under the Franco Dictatorship
which dictated how things should be done. Tourism was the main industry in Spain, as the
state tried to push into various areas, ovreregulating the private sector.

Today, the
two countries have taken very different paths and the results are diametrically
the opposite. Spain
is prosperous, the private sector is thriving and they enjoy unprecedented
levels of freedom and democracy. Venezuela on the other hand has
become a relatively poor country, as the standard of living has gone down
significantly in the last twenty five years.

Obviously,
there were complex cultural and educational variables involved in the different
paths taken by the two countries. But in the end, the difference boils down to
one country (Spain) choosing the private sector as its main driver, while the
other one (Venezuela) has been bogged down for forty years in the belief that
this weird form of state capitalism is the solution, even if our current
President claims now to be a socialist.

Chavez is
right when he says that the forty years of democracy were a failure. But the
path he is following is precisely the one that led to the errors of the last
forty years. He has magnified and emphasized the mistakes of the past, taking
the country in the same path that so obviously failed in the 70’s and 80’s. There
is simply one difference: During the forty years of democracy that preceded
Chavez, there were checks and balances that showed the mistakes that were being
made. Currently Chavez controls everything and any criticism or challenge to
his authority leads nowhere.

In the 60’s
Spain
had no oil companies, a state telecom company, little science and an overly
regulated banking system. Venezuela
on the other hand had oil concessions and a Government owned Oil Company, a
state telecom company, a small but world class scientific community and a
banking system that was overly regulated.

By the
time the seventies came around, the two countries took very different directions.
Venezuela
nationalized the whole oil industry, imposed further regulations on the banking
system and did not let go of the telecom company until 1991. Oil prices went up
and the Government created myriads of new Government enterprise,s thinking that
was the way to grow the economy.

Spain followed a different road.
Telefonica was completely privatized and the Government did not get too
involved in running new enterprises. After Franco’s death in 1975 the “socialists”
took over and actually gave the private sector even more of a free hand, the
economy grew, Spain joined the European community and the rest is simply
history.

Venezuela on the other hand was late in
privatizing. Late in closing most of these money losing Government enterprises
and has continues to this day to overregulated the private sector, including
three separate episodes of exchange and export controls in the last twenty
years.

While I am
obviously oversimplifying, let’s look at a few economic areas and what has been
different between these two countries:

Agriculture: Spain was strong in certain areas
of agriculture, particularly orchards, olives, olive oil and wines. Not much has
changed in the last forty years except the emphasis on these same areas of
strength and not self-sufficiency. Yesterday’s olive and wine cooperatives have
led to luxury brands run by the kids of the members of the cooperatives and
mechanization has increased yields. Fewer people live in rural areas, but
production is up.

By
contrast, Venezuela
has been repeatedly pushed into a dream of self-sufficiency which is no more than
a chimera. Meanwhile areas like cocoa and coffee were overregulated,
deregulated and subsequently regulated again for too long and the country has
failed to develop its strengths. Only in some areas of tropical fruits have
there been improvements. Fewer people also live in rural areas, but production
is way down.

Oil: Spain had no oil and no oil
companies in the 60’s and has become somewhat of an oil powerhouse. Repsol and
Cepsa, to name just a couple, have expanded and grown by simply looking
outwards in Africa and America.
A few years after the Argentinean Government privatized YPF, Repsol took over
YPF, while PDVSA stood idly on the sidelines.

Venezuela meanwhile has continued to lose
production capabilities. When Carlos Andres Perez nationalized the oil industry
in 1974, the country produced over a million barrels of oil a day, today OPEC
and the AEI say the country produces only 2.6 million barrels a day, while
PDVSA claims it is producing 3.1 million. PDVSA did expand internationally for strategic
reasons, a policy that was widely opposed by many of today’s Government and
opposition figures. They all claimed the money should be spent in Venezuela and
not abroad. Spain
would have nothing with thinking like that, but our current Government is
actually proposing to sell assets abroad. Go figure!

Telecom: Venezuela’s telecom company is
majority owned by US’ Verizon which inherited it from GTE. It is also the second
largest mobile carrier. The largest is Telcel, majority owned by none other
than Telefonica of Spain, which bought all of Bellsouth’s cell phone concessions
in Latin America last year and owns operating companies in Peru, Chile,
Argentina and Brazil (And 5% of CANTV!)

Banking: In the 70’s the Venezuelan
Government limited the percentage that foreign banks could own in local banks,
essentially creating a strong local financial system. However, lack of adequate
regulation created a financial crisis in the mid-90’s and laws were changed to
allow foreign banks back in. Today foreign banks own over 60% of the local
banks, with two Spanish owned banks in the top four in size. Spanish banks have
become so aggressive that they have expanded all over Europe.
Only last week BBVA announced a takeover of Italy’s number 6 bank Banca
Nazioanle del Lavoro.

Joining
the European community created a scientific system in Spain in the last
twenty years. Twenty years ago, Venezuela’s
science was of higher quality and productivity than Spanish science. This is no
longer the case. Twenty years ago, good Spanish scientists went abroad,
Venezuelans came home. Today, it is exactly the opposite.

These
examples may give an oversimplified view of what has happened in the two
countries, but I believe that we took one path dominated by a mindset of
ideology and a lack of economic culture on the part of our politicians. Spain, on the
other hand, was blessed by the ascension to power of a strong academic and professional
class, which had been relegated to the sidelines during Franco’s Dictatorship. These
capable men became politicians and helped created what it is to me certainly an
economic and development miracle.

Meanwhile,
here in Venezuela
we continue to follow on the same path of errors and improvisation. Venezuela
Inc. is back, PDVSA is being reduced to its minimal expression and the private sector
is overregulated with exchange, financial and export controls. Ideology
continues to dominate action and ignorance rules. Only yesterday a pro-Chavez
Deputy said in reference to an economic concept “the fact that such a concept
does not exist, does not mean that we can not invent it”. It is ignorance and
ideology like that that has taken these two countries, Spain and Venezuela, in such diverging paths
in the last forty years. Nothing in the horizon indicates there is any change
in the near or medium term future.